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vfw614
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Large German Corporations Lobbying Against Advance Payments for Airline Tickets

Thu Jul 09, 2020 7:48 pm

There is increasing pressure to abolish the system of advance payment for airline tickets in Germany as a result of Lufthansa not refunding almost 2bn EUR of customer money for months. According to an article in the Handelsblatt (= German equivalent to the FT), a number of industry organizations representing large companies with corporate travel departments have called on the government to stop airlines from being allowed to demand advance payment. They demand a change to a "pay as you check-in" system based on the model hotels are offering. Apparently some smaller companies have gotten into trouble as Lufthansa has not refunded six-figure sums to them. One quite charming argument: If ever there was a time to change the system, it would be right now as currently airlines do not sit on top of a pile of advance payments, given the current lack of bookings by customers. Consequently, cash flow would not be as severely impacted as it would be at a later point in time if the system would be changed.

https://www.handelsblatt.com/unternehme ... re=twitter
 
MIflyer12
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Re: Large German Corporations Lobbying Against Advance Payments for Airline Tickets

Thu Jul 09, 2020 7:59 pm

That is a very... interesting...argument.

Wouldn't it just be easier to clarify in law that carriers are obligated to provide cash refunds with flight cancellation or change in schedule of xxx minutes? To require carriers to place funds in escrow until the segment is flown?
 
vfw614
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Re: Large German Corporations Lobbying Against Advance Payments for Airline Tickets

Thu Jul 09, 2020 8:09 pm

Airlines in Europe are already under a statutory obligation by EU law to refund within 7 days, but they simply do not comply (unless they are sued, what customers have begun doing now). This non-compliance with the law is the reason why there are now demands to stop them from taking advance payments,
 
davidjohnson6
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Re: Large German Corporations Lobbying Against Advance Payments for Airline Tickets

Thu Jul 09, 2020 8:18 pm

So why not just strengthen the law around refunds within 7 days, make the penalty more severe for non-compliance and give a regulatory body a greater capacity to intervene when refunds are not provided ? EU261 came about largely because an LCC based in Ireland was taking advantage of passengers when flights were changed / cancelled at short notice
 
smartplane
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Re: Large German Corporations Lobbying Against Advance Payments for Airline Tickets

Thu Jul 09, 2020 8:25 pm

IATA CFDS and CBS have a joint review investigating this very area.

SWIFT offered a transaction by transaction payment matching system for the industry last decade, rejected for technical reasons, but really because airline access to, and use of free funds would evaporate.

Ironic in many countries, intermediaries like travel agents have to hold funds in escrow / trust, but airlines are placed on a pedestal.

Other industries transacting lower values / higher volumes have found technical solutions which work, so it's about will power rather than technical feasibility.
 
bennett123
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Re: Large German Corporations Lobbying Against Advance Payments for Airline Tickets

Thu Jul 09, 2020 8:30 pm

Given that there would be no payment until check in, presumably the price would be set at that point.

More importantly, you could get to check in, and be told there are no tickets available.

Not a terribly good outcome for the corporates.
 
GLANKG
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Re: Large German Corporations Lobbying Against Advance Payments for Airline Tickets

Thu Jul 09, 2020 8:32 pm

I know in British Columbia seaplane operators only charge your card on the day of travel rather than the day of purchase.
 
Ziyulu
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Re: Large German Corporations Lobbying Against Advance Payments for Airline Tickets

Thu Jul 09, 2020 8:43 pm

Wasn't there one airline that allowed you to pay once you get on board? I think more airlines need to be like that.
 
CFWAD
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Re: Large German Corporations Lobbying Against Advance Payments for Airline Tickets

Thu Jul 09, 2020 8:54 pm

Ziyulu wrote:
Wasn't there one airline that allowed you to pay once you get on board? I think more airlines need to be like that.


A few in the past have done that. Laker Airways "aka SkyTrain" was I think one of the first - at least Internationally.

I believe People Express 1.0 did the same. As did the Eastern shuttle back in the 70s and 80s.

On some itineraries and for some lean corporations - this setup could potentially be ideal and work. But with deregulation - you would really have to keep your costs in line to make this competitive long term.
Last edited by CFWAD on Thu Jul 09, 2020 9:02 pm, edited 1 time in total.
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vfw614
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Re: Large German Corporations Lobbying Against Advance Payments for Airline Tickets

Thu Jul 09, 2020 8:54 pm

bennett123 wrote:
Given that there would be no payment until check in, presumably the price would be set at that point.

More importantly, you could get to check in, and be told there are no tickets available.

Not a terribly good outcome for the corporates.


They are aware of that argument and have suggested that an alternative model has worked perfectly well in the hotel industry - you book in advance, but your credit card is only charged when checking-in or being a no-show on the day of travel (althought they have not really adressed the fact that there are also discounted prepayment rates)..
 
mxaxai
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Re: Large German Corporations Lobbying Against Advance Payments for Airline Tickets

Thu Jul 09, 2020 8:55 pm

Even rail and bus operators usually only charge on the day of travel. There's no reason to make airlines special.

Btw Lufthansa is in the spotlight here because it has the largest debt to these corporations, but all airlines are guilty of this practice. Some are slightly better than others, at least.
Ryanair told us it has processed more than €400m in refunds and vouchers since mid-March, which is more than a third of the total backlog. Significantly, that figure is for refunds and vouchers combined.

When we surveyed passengers last month, just 5% of Ryanair’s customers said they’d received a refund within seven days of a flight being cancelled.

In contrast, 39% of BA passengers and 29% of Jet2 passengers were refunded within the legally required timeframe. 84% of Ryanair customers said they were still waiting for a refund.

https://www.which.co.uk/news/2020/06/is ... r-refunds/
https://www.moneysavingexpert.com/news/ ... nue-to-tr/
 
CFWAD
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Re: Large German Corporations Lobbying Against Advance Payments for Airline Tickets

Thu Jul 09, 2020 8:56 pm

GLANKG wrote:
I know in British Columbia seaplane operators only charge your card on the day of travel rather than the day of purchase.


They also charge a premium for that service. No such thing as "just a seat" on Harbour Air or Sea Air...

..And a lot of their off-peak revenues are come from the fact the capital city is on an island, which help to protect their cash flows.
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klm617
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Re: Large German Corporations Lobbying Against Advance Payments for Airline Tickets

Thu Jul 09, 2020 8:57 pm

Ziyulu wrote:
Wasn't there one airline that allowed you to pay once you get on board? I think more airlines need to be like that.


That was People Express. I often wonder what they would do when a passenger didn't have the cash to pay. Flew them once EWR-ORF
the truth does matter, guys. too bad it's often quite subjective. the truth is beyond the mere facts and figures. it's beyond good and bad, right and wrong...
 
Exeiowa
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Re: Large German Corporations Lobbying Against Advance Payments for Airline Tickets

Thu Jul 09, 2020 9:04 pm

Systems get changed when they are shown not to work. If the corporate entities band together they can probably force some changes.
 
davidjohnson6
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Re: Large German Corporations Lobbying Against Advance Payments for Airline Tickets

Thu Jul 09, 2020 9:24 pm

Deferring a decision on whether to buy a ticket or not until the day of travel instead of purchasing a nonrefundable ticket in advance is a call option. That option has value, so airlines charge for it

Consider a world with just 2 airports - one called CityPort and BeachPort. People want to go to the beach only when it is sunny. Weather forecasts are accurate no more than 10 days ahead. If everyone waits until the last minute, then on rainy days, almost nobody buys a ticket but the airline still has to pay salaries and lease costs. The airline chooses to offer 2 fares... HighFare which costs more but bookable until last minute, and LowFare which is cheaper but is nonrefundable, paid at the time of purchase and must be booked 2 weeks or more in advance. Pax see the cheaper fare, and decide to take the risk of bad weather in return for the cash saving.

Airlines need to charge for the optionality embedded in a refundable ticket. It might be held in an escrow account (as happens with credit card purchases in many countries) but the money absolutely has to leave the passenger's account so the airline can be certain of receiving funds if the passenger is transported. Forcing airlines to put funds for all tickets (not just from a credit card) into an escrow account instead of an airline's general funds might be an idea to consider

The idea of passengers not paying until the day of travel would destroy the concept of low fares and send us back to the 1960s. Stronger enforcements of refunds for cancelled flights or mandating escrow accounts should suffice to solve the problem in future
Last edited by davidjohnson6 on Thu Jul 09, 2020 9:29 pm, edited 1 time in total.
 
MIflyer12
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Re: Large German Corporations Lobbying Against Advance Payments for Airline Tickets

Thu Jul 09, 2020 9:27 pm

mxaxai wrote:
Even rail and bus operators usually only charge on the day of travel. There's no reason to make airlines special.


A lot of that stuff is flat-rate tickets, and no reservation required. Subways may have standing-room-only but planes can't.
 
MIflyer12
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Re: Large German Corporations Lobbying Against Advance Payments for Airline Tickets

Thu Jul 09, 2020 9:35 pm

davidjohnson6 wrote:
Consider a world with just 2 airports - one called CityPort and BeachPort. People want to go to the beach only when it is sunny. Weather forecasts are accurate no more than 10 days ahead. If everyone waits until the last minute, then on rainy days, almost nobody buys a ticket but the airline still has to pay salaries and lease costs. The airline chooses to offer 2 fares... HighFare which costs more but bookable until last minute, and LowFare which is cheaper but is nonrefundable, paid at the time of purchase and must be booked 2 weeks or more in advance. Pax see the cheaper fare, and decide to take the risk of bad weather in return for the cash saving.

Airlines need to charge for the optionality embedded in a refundable ticket. It might be held in an escrow account (as happens with credit card purchases in many countries) but the money absolutely has to leave the passenger's account so the airline can be certain of receiving funds if the passenger is transported. Forcing airlines to put funds for all tickets (not just from a credit card) into an escrow account instead of an airline's general funds might be an idea to consider


That's an interesting construct but doesn't very well describe reality. Carriers set schedules months in advance. They don't cancel flights on 'cloudy days'. They don't send 6x the flights on a sunny day.

You say they need to charge for optionality. It's more correct to say that they have found a way they CAN charge for optionality. The idea of the hotel credit card guarantee shows your assertion that funds need to leave the passenger's account is false. Do you perhaps work for an airline and have an interest in maintaining the status quo?
 
davidjohnson6
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Re: Large German Corporations Lobbying Against Advance Payments for Airline Tickets

Thu Jul 09, 2020 9:46 pm

I agree airlines don't vary the numbet of flights based on sun/cloud - the number of flights is fixed months in advance with only minor capacity to vary the number of seats by swapping aircraft - eg A319 v A321 based on very short term demand variations. Thus if supply is fixed, demand must be managed to ensure profitability.

When hotels put a hold on funds in your credit card, they are in effect moving the funds into a quasi-escrow state. If guest is a no-show, the hotel still gets its money. Of course, hotels often charge a non-refundable-pay-up-front lower room rate compated to the walk-up rack rate - ie it is not just airlines charging for optionality

I don't work for an airline - I work instead in a bank, pricing options with an interest in counterparty default risk.
Last edited by davidjohnson6 on Thu Jul 09, 2020 9:51 pm, edited 1 time in total.
 
vfw614
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Re: Large German Corporations Lobbying Against Advance Payments for Airline Tickets

Thu Jul 09, 2020 9:51 pm

davidjohnson6 wrote:
The idea of passengers not paying until the day of travel would destroy the concept of low fares and send us back to the 1960s. Stronger enforcements of refunds for cancelled flights or mandating escrow accounts should suffice to solve the problem in future


The problem really is that airlines use such a massive amount of customer money paid in advance as working capital that any change to the system would leave them with severe cash flow problems, so you really cannot do a hard cut and just prohibit advance payments from a set date onwards. Hence the argument to bring about change right now as, for obvious reasons, airlines have pocketed relatively little money from new ticket sales over the past 4 months.
 
bnatraveler
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Re: Large German Corporations Lobbying Against Advance Payments for Airline Tickets

Thu Jul 09, 2020 9:58 pm

Generally, the credit card companies are who are regulating when the airline gets payment. If the credit card company thinks there is risk that the seller (airline) may not deliver, they will hold higher reserves (as high as 100%) until the flight date. I think the big airlines have largely been able to get virtually all of their funds made available to them upon purchase. No need for a new system to manage this - the credit card company can already handle the "escrow" function.
 
vfw614
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Re: Large German Corporations Lobbying Against Advance Payments for Airline Tickets

Thu Jul 09, 2020 10:24 pm

I think from a regulatory perspective it is not really desirable to leave customers to the mercy of credit card companies. The current experience shows that credit card companies are quite indifferent about charge back requests by airline customers - plus why should customers provide CC companies (instead of airlines) with billions of interest free investment funds...?.
 
Kilopond
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Re: Large German Corporations Lobbying Against Advance Payments for Airline Tickets

Thu Jul 09, 2020 11:02 pm

The discussion ignited by those airline customers is just dumb, dumb, dumb! For many reasons.

First of all, they could pay full fares instead of heavily discounted ones. In this case, no advance payment would be required, according to the ticketing rules. Railways work the same way: it is your choice whether you pay SNCF, DB and the likes € 19 in advance and risk to loose your investment completely if you miss the train. Or you pay the undiscounted walk-on fare which might be higher by a factor of 20, 30, 40...

And then, airlines that failed to cash back the refunds instantly, all violated the code cilvil/"BGB". No additional regulations are needed.
 
VS11
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Re: Large German Corporations Lobbying Against Advance Payments for Airline Tickets

Thu Jul 09, 2020 11:03 pm

bnatraveler wrote:
Generally, the credit card companies are who are regulating when the airline gets payment. If the credit card company thinks there is risk that the seller (airline) may not deliver, they will hold higher reserves (as high as 100%) until the flight date. I think the big airlines have largely been able to get virtually all of their funds made available to them upon purchase. No need for a new system to manage this - the credit card company can already handle the "escrow" function.


This is a good point but the credit card companies only act as an incentive to the airlines. It took me almost 3 months to get a cash refund from KLM. I think the CC companies made it easier to get a cash refund instead of a voucher and I am glad for that but still it took 3 months.
 
AngMoh
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Re: Large German Corporations Lobbying Against Advance Payments for Airline Tickets

Thu Jul 09, 2020 11:12 pm

vfw614 wrote:
bennett123 wrote:
Given that there would be no payment until check in, presumably the price would be set at that point.

More importantly, you could get to check in, and be told there are no tickets available.

Not a terribly good outcome for the corporates.


They are aware of that argument and have suggested that an alternative model has worked perfectly well in the hotel industry - you book in advance, but your credit card is only charged when checking-in or being a no-show on the day of travel (althought they have not really adressed the fact that there are also discounted prepayment rates)..


This effectively applies here. With airline tickets, the cheap tourist buy discounted non-refundable tickets, the same way as there are discounted non-refundable hotel rooms. These would be charged at the time of booking. Business buys higher priced refundable/rebookable tickets, the same way as hotel bookings where you are charged at check-in are more expensive. These should be be charged 24 hours before check-in opens. When the flexible ticket is more than double the price of a discounted non-refundable ticket, there is no excuse for charging a credit card only just before check-in opens.
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airboss787
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Re: Large German Corporations Lobbying Against Advance Payments for Airline Tickets

Thu Jul 09, 2020 11:23 pm

This is not a bad idea. I completely support this. When you make the purchase, you lock in the fare and anything extra you may pay for and after check in, the amount is deducted. Not only hotels, but something like what any retailer does by charging the card only when the product ships. Also, restaurants do this too, by creating a hold in your account for that amount, so there is no question of not being able to pay the day of. The money is authorized and held, not by the airline but by the bank till check in, when the funds are released.
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airboss787
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Re: Large German Corporations Lobbying Against Advance Payments for Airline Tickets

Thu Jul 09, 2020 11:28 pm

AngMoh wrote:
vfw614 wrote:
bennett123 wrote:
Given that there would be no payment until check in, presumably the price would be set at that point.

More importantly, you could get to check in, and be told there are no tickets available.

Not a terribly good outcome for the corporates.


They are aware of that argument and have suggested that an alternative model has worked perfectly well in the hotel industry - you book in advance, but your credit card is only charged when checking-in or being a no-show on the day of travel (althought they have not really adressed the fact that there are also discounted prepayment rates)..


This effectively applies here. With airline tickets, the cheap tourist buy discounted non-refundable tickets, the same way as there are discounted non-refundable hotel rooms. These would be charged at the time of booking. Business buys higher priced refundable/rebookable tickets, the same way as hotel bookings where you are charged at check-in are more expensive. These should be be charged 24 hours before check-in opens. When the flexible ticket is more than double the price of a discounted non-refundable ticket, there is no excuse for charging a credit card only just before check-in opens.


If I think what you think you are saying, it should be pretty straightforward. There will be no change in anything except when the amount is debited from the customer an into an airlines purse. No check-in, no money deducted. You check in, money is debited. All businesses will get the rates they have been provided with, discount or no discount, the only charge is that the money will be deducted after check-in.
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afgeneral
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Re: Large German Corporations Lobbying Against Advance Payments for Airline Tickets

Fri Jul 10, 2020 12:04 am

Kilopond wrote:
The discussion ignited by those airline customers is just dumb, dumb, dumb! For many reasons.

First of all, they could pay full fares instead of heavily discounted ones. In this case, no advance payment would be required, according to the ticketing rules. Railways work the same way: it is your choice whether you pay SNCF, DB and the likes € 19 in advance and risk to loose your investment completely if you miss the train. Or you pay the undiscounted walk-on fare which might be higher by a factor of 20, 30, 40...

And then, airlines that failed to cash back the refunds instantly, all violated the code cilvil/"BGB". No additional regulations are needed.


You mean 20%, 30%, 40% right?

because advanced fare is often not that much less than full fare for train journeys

except for very specific services like high speed rail which is only a tiny amount of overall rail journeys
 
prebennorholm
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Re: Large German Corporations Lobbying Against Advance Payments for Airline Tickets

Fri Jul 10, 2020 12:26 am

Forget about those refunds. The money isn't there, it has been stolen.

99% of all airlines are in reality bankrupt today. Most seem to be floating, but only because their banks are heavily involved in leasing planes to them. In order to at least get a minor part of the nominal leasing fees the banks have to keep the arlines floating, because the banks cannot themelves fly the planes.

Prepaid tickets, the money doesn't really belong to the airline company until they have delivered their product, the flight. They only have to manage the money in the meantime. But that's not how greedy shareholders think:
There is a bank account with money. We book it as profit and pay it to ourselves, the shareholders.

So the money isn't there. It was stolen years ago by the shareholders.

There is always a risk of doing business. This time the airline customers got fooled big time. Of all the people I know none have got any refund for cancelled flights, and I have told them that they are wasting time and effort trying to get it. Maybe you will one day see some of your money in case you booked at a (partly) state owned company in one of the better organized countries. Otherwise, forget it.
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mxaxai
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Re: Large German Corporations Lobbying Against Advance Payments for Airline Tickets

Fri Jul 10, 2020 12:44 am

Kilopond wrote:
First of all, they could pay full fares instead of heavily discounted ones. In this case, no advance payment would be required, according to the ticketing rules. Railways work the same way: it is your choice whether you pay SNCF, DB and the likes € 19 in advance and risk to loose your investment completely if you miss the train.

What's the difference, though, between booking in advance and paying instantly, or booking in advance but paying on the day of travel? In either case you would lose your money if you no-show, only on different days.

But it's much easier for the airline to cancel the ticket since they would avoid the hassle of moving money back and forth. There's no reason for the date of booking and the date of payment to be identical.
 
vfw614
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Re: Large German Corporations Lobbying Against Advance Payments for Airline Tickets

Fri Jul 10, 2020 12:46 am

AngMoh wrote:
vfw614 wrote:
bennett123 wrote:
Given that there would be no payment until check in, presumably the price would be set at that point.

More importantly, you could get to check in, and be told there are no tickets available.

Not a terribly good outcome for the corporates.


They are aware of that argument and have suggested that an alternative model has worked perfectly well in the hotel industry - you book in advance, but your credit card is only charged when checking-in or being a no-show on the day of travel (althought they have not really adressed the fact that there are also discounted prepayment rates)..


This effectively applies here. With airline tickets, the cheap tourist buy discounted non-refundable tickets, the same way as there are discounted non-refundable hotel rooms. These would be charged at the time of booking. Business buys higher priced refundable/rebookable tickets, the same way as hotel bookings where you are charged at check-in are more expensive. These should be be charged 24 hours before check-in opens. When the flexible ticket is more than double the price of a discounted non-refundable ticket, there is no excuse for charging a credit card only just before check-in opens.


The problem is that regardless of the price of the ticket / fare class airlines have not been refunding according to their statutory obligations as their business model is based on interest free credits provided by their customers..While they can argue all day long about their pricing model, when push comes to shove, the only way to effectively enforce the statutory rules is to make them unnecessary in the first place by abolishing prepayment as such (which, as others have already pointed out, is not the norm, but the absolute exception in cotract law). It is not as if these rules were not crystal clear and in the case of Lufthansa, they paid immediately when customers sued them in court. Needless to say that there are also complaints that this amounts to an abuse of the court system.
 
AEROFAN
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Re: Large German Corporations Lobbying Against Advance Payments for Airline Tickets

Fri Jul 10, 2020 1:33 am

bnatraveler wrote:
Generally, the credit card companies are who are regulating when the airline gets payment. If the credit card company thinks there is risk that the seller (airline) may not deliver, they will hold higher reserves (as high as 100%) until the flight date. I think the big airlines have largely been able to get virtually all of their funds made available to them upon purchase. No need for a new system to manage this - the credit card company can already handle the "escrow" function.


There are a few things wrong with what you stated. No credit card company holds 100% of airline funds. A reserve is based on a calculation that combine some percentage of:
Expected refunds over a certain time period+expected charge backs over a certain time period+expected processing fees over a certain time period. This is an item negotiated and built into the contract and doesn't simply get changed on an adhoc basis.

When times are good i.e. pre-covid, no credit card processing entity holds reserves of the airlines' funds. A reserve build up only occurs when there is potential for an airline to go out of business and leave the banks holding the bag.
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zeke
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Re: Large German Corporations Lobbying Against Advance Payments for Airline Tickets

Fri Jul 10, 2020 2:58 am

vfw614 wrote:
The problem is that regardless of the price of the ticket / fare class airlines have not been refunding according to their statutory obligations as their business model is based on interest free credits provided by their customers..


I can see your point here, but on the flip side it is not the airline choosing not to fly the service it is the government prevents them from doing so. The aircraft, crew, infrastructure that is in place to complete your trip is still there. The airline wants to fly, but it is not allowed to.

vfw614 wrote:
While they can argue all day long about their pricing model, when push comes to shove, the only way to effectively enforce the statutory rules is to make them unnecessary in the first place by abolishing prepayment as such (which, as others have already pointed out, is not the norm, but the absolute exception in cotract law).


This is somewhat misleading as we are talking about corporate contracts, these are not priced like retail tickets, and the same rules do not apply. A corporate contract for example may pay for 100 seats for a zone, and as a result their purchase price is not a fixed seat on a fixed date, it’s a very affordable (ie retail PEY fare levels for Business class), the corporation can mix and match city pairs in the zone. And it might mean a domestic sector is included. For example if a zone was west coast USA to Europe, they could do LAX-FRA-CDG in that zone arrangement.

It would be similar to a corporate cell phone deal, you go to a telco and ask for a deal for 10,000 company devices. You get a cheap rate, and pay for the 10,000 devices if you use them or not.

I cannot believe any corporation would be owed a six figure sum for retail tickets. They would either have a third party like Amex to do all the travel, that money is not going to the airlines, or they would have a supply agreement with the airline. They do that to gain access to significant long term savings.
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usdcaguy
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Re: Large German Corporations Lobbying Against Advance Payments for Airline Tickets

Fri Jul 10, 2020 3:43 am

zeke wrote:
vfw614 wrote:
The problem is that regardless of the price of the ticket / fare class airlines have not been refunding according to their statutory obligations as their business model is based on interest free credits provided by their customers..


I can see your point here, but on the flip side it is not the airline choosing not to fly the service it is the government prevents them from doing so. The aircraft, crew, infrastructure that is in place to complete your trip is still there. The airline wants to fly, but it is not allowed to.

vfw614 wrote:
While they can argue all day long about their pricing model, when push comes to shove, the only way to effectively enforce the statutory rules is to make them unnecessary in the first place by abolishing prepayment as such (which, as others have already pointed out, is not the norm, but the absolute exception in cotract law).


This is somewhat misleading as we are talking about corporate contracts, these are not priced like retail tickets, and the same rules do not apply. A corporate contract for example may pay for 100 seats for a zone, and as a result their purchase price is not a fixed seat on a fixed date, it’s a very affordable (ie retail PEY fare levels for Business class), the corporation can mix and match city pairs in the zone. And it might mean a domestic sector is included. For example if a zone was west coast USA to Europe, they could do LAX-FRA-CDG in that zone arrangement.

It would be similar to a corporate cell phone deal, you go to a telco and ask for a deal for 10,000 company devices. You get a cheap rate, and pay for the 10,000 devices if you use them or not.

I cannot believe any corporation would be owed a six figure sum for retail tickets. They would either have a third party like Amex to do all the travel, that money is not going to the airlines, or they would have a supply agreement with the airline. They do that to gain access to significant long term savings.


That’s not the way it’s done, at least in the States. Usually, a given share of a company’s business is promised to the airline in exchange for discounts or specific market fares, usually in certain markets or zones (a percentage of revenue or seats flown is targeted). The discounts are filed on top of published fare rules. These companies that are complaining basically want the carriers to waive AP restrictions, and that is almost never a good deal for the airlines. It distorts competition and robs carriers of the chance to charge more for last-minute travel. One compromise may be to offer a longer ticketing time limit for certain higher fares, say 7 days after reservations are made if travel is not within 14 days and as long as reservations are made within the normal AP window. Offering TTL flexibility is fairly easy, and debits can be issued for violations. Still, the airlines will want financial commitments for these waivers, and German companies are notorious for ignoring them.
 
smartplane
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Re: Large German Corporations Lobbying Against Advance Payments for Airline Tickets

Fri Jul 10, 2020 4:33 am

bennett123 wrote:
Given that there would be no payment until check in, presumably the price would be set at that point.

More importantly, you could get to check in, and be told there are no tickets available.

Not a terribly good outcome for the corporates.

The customer pays when the booking is confirmed, for arguments sake to Bank of IATA. Bank releases payment when certain pre-conditions are met. One suggestion was payment was released in two tranches - check in and arrival.

There is a robust flow chart covering cancellations (customer / airline), no shows, diversions, death / injury, etc.
 
GLANKG
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Re: Large German Corporations Lobbying Against Advance Payments for Airline Tickets

Fri Jul 10, 2020 6:03 am

CFWAD wrote:
GLANKG wrote:
I know in British Columbia seaplane operators only charge your card on the day of travel rather than the day of purchase.


They also charge a premium for that service. No such thing as "just a seat" on Harbour Air or Sea Air...

..And a lot of their off-peak revenues are come from the fact the capital city is on an island, which help to protect their cash flows.


I am not sure it's a special service, pretty much all my bookings with Harbour Air (4 this year) were charged on the day of travel, regardless of fare basis, i.e. GoFlex or GoFast. It seems to be standard practice.

Yes I imagine they're doing well with business & high end leisure mix CXH - Victoria, never seen one way fare below CAD 99 which is already rare.
 
tommy1808
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Re: Large German Corporations Lobbying Against Advance Payments for Airline Tickets

Fri Jul 10, 2020 6:14 am

davidjohnson6 wrote:
So why not just strengthen the law around refunds within 7 days, make the penalty more severe for non-compliance and give a regulatory body a greater capacity to intervene when refunds are not provided ? EU261 came about largely because an LCC based in Ireland was taking advantage of passengers when flights were changed / cancelled at short notice


EU261 needed about a decade of airlines getting it on the nose in court before they started complying somewhat hassle free.
The problem is not the law, it's that every single customer has to sue.
What would help is prosecutors looking at those cases as fraud/delayed filing of insolvency cases.

Best regards
Thomas
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vhtje
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Re: Large German Corporations Lobbying Against Advance Payments for Airline Tickets

Fri Jul 10, 2020 7:28 am

zeke wrote:
vfw614 wrote:
The problem is that regardless of the price of the ticket / fare class airlines have not been refunding according to their statutory obligations as their business model is based on interest free credits provided by their customers..


I can see your point here, but on the flip side it is not the airline choosing not to fly the service it is the government prevents them from doing so. The aircraft, crew, infrastructure that is in place to complete your trip is still there. The airline wants to fly, but it is not allowed to..


So? I am a partner leading the very lucrative consulting arm in an accounting firm. We would love to be able to offer our consulting services to our audit clients, but Government regulations will not allow us. Previously, we could approach audit clients and offer consulting services if the audit relationship had ceased. Now, we are not allowed to approach them at all.

All businesses have to obey the law, even when it changes and even when it hurts my business or makes little sense to me. But we do it. Why should airlines be any different?

In my view, airlines have had it good for two long. As a consumer, when you purchase an airline ticket, the contract is loaded against you. The airline has all the control, and the passenger generally very little sway in being able to vary the contract; even when the contract is created many months in advance of the service delivery.

Yes, I fully understand the airline industry is a very complex one, with some extremely challenging cost structures not encountered in other sectors. But, still, to load contract against the customer in such a way. I cannot think of any other business where so much control wrests with the service provider/vendor, for so long before delivery.

The recent changes in the EU regarding delay compensation have been interesting (although personally, I think some of it goes too far, particularly around compensation amounts). It would be insightful to read some research into how these changes have impacted airline profitability and performance, if at all. And, indeed, how they have influenced consumer behaviour.
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vfw614
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Re: Large German Corporations Lobbying Against Advance Payments for Airline Tickets

Fri Jul 10, 2020 7:36 am

That's a good point. It is cheaper for airlines to get sued by 1-2 per cent of the customers despite the resulting additional costs instead of properly refunding all customers. An alternative would be more powers to the LBA aka German CAA. Apparently US airlines cough up dough rapidly as soon as a complaint is filed with the DOT because of the hefty fines that follow from non-compliance.

I cannot believe any corporation would be owed a six figure sum for retail tickets. They would either have a third party like Amex to do all the travel, that money is not going to the airlines, or they would have a supply agreement with the airline. They do that to gain access to significant long term savings.


Maybe the system in the US works differently. But that is pretty much what the linked article says. However, it refers to medium sized companies that probably have different type of contracts compared to large international corporation (that are, however, lobbying for change as well).

Regardless of that, the fact remains that Lufthansa alone has been withholding 1.8bn EUR from customers of all colors and shapes - consumer, small companies, large corporations. Initially almost everybody concerned was quite understanding, but when Lufthansa cut off automated refunds for customers and travel agents and came up with lame excuse after lame excuse for the delays, major stakeholders from both the consumer and the business world lost patience.
 
FluidFlow
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Re: Large German Corporations Lobbying Against Advance Payments for Airline Tickets

Fri Jul 10, 2020 8:51 am

zeke wrote:
vfw614 wrote:
The problem is that regardless of the price of the ticket / fare class airlines have not been refunding according to their statutory obligations as their business model is based on interest free credits provided by their customers..


I can see your point here, but on the flip side it is not the airline choosing not to fly the service it is the government prevents them from doing so. The aircraft, crew, infrastructure that is in place to complete your trip is still there. The airline wants to fly, but it is not allowed to.


That's not the case for all airlines and I think not for Lufthansa. As far as I know the German government does not prevent Lufthansa from flying but due to restrictions for travelers no one wants to fly or is denied entry into the destination country so Lufthansa could still fly and then would have no obligation to pay back the fare as the service is provided.
 
VSMUT
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Re: Large German Corporations Lobbying Against Advance Payments for Airline Tickets

Fri Jul 10, 2020 9:17 am

davidjohnson6 wrote:
Deferring a decision on whether to buy a ticket or not until the day of travel instead of purchasing a nonrefundable ticket in advance is a call option. That option has value, so airlines charge for it

Consider a world with just 2 airports - one called CityPort and BeachPort. People want to go to the beach only when it is sunny. Weather forecasts are accurate no more than 10 days ahead. If everyone waits until the last minute, then on rainy days, almost nobody buys a ticket but the airline still has to pay salaries and lease costs. The airline chooses to offer 2 fares... HighFare which costs more but bookable until last minute, and LowFare which is cheaper but is nonrefundable, paid at the time of purchase and must be booked 2 weeks or more in advance. Pax see the cheaper fare, and decide to take the risk of bad weather in return for the cash saving.

Airlines need to charge for the optionality embedded in a refundable ticket. It might be held in an escrow account (as happens with credit card purchases in many countries) but the money absolutely has to leave the passenger's account so the airline can be certain of receiving funds if the passenger is transported. Forcing airlines to put funds for all tickets (not just from a credit card) into an escrow account instead of an airline's general funds might be an idea to consider

The idea of passengers not paying until the day of travel would destroy the concept of low fares and send us back to the 1960s. Stronger enforcements of refunds for cancelled flights or mandating escrow accounts should suffice to solve the problem in future


Airlines abused the current legislation. They already had their chance to avoid this. Now they can have it the hard way instead.


zeke wrote:
I can see your point here, but on the flip side it is not the airline choosing not to fly the service it is the government prevents them from doing so. The aircraft, crew, infrastructure that is in place to complete your trip is still there. The airline wants to fly, but it is not allowed to.


That's a matter between the airline and the state. Keep the consumer out of that.
 
Jomar777
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Re: Large German Corporations Lobbying Against Advance Payments for Airline Tickets

Fri Jul 10, 2020 9:32 am

I think the problem here is non-compliance rather than changing the system. If you make tickets to be booked like hotel stays, you might end up with other issues which might be unforeseen at present.
The best outcome right now is to actually enforce what we have in place in matters of law. In other words, airlines will HAVE TO refund within 7 days - provided merit - otherwise, face aircraft impounding, partial/total bans on flying and/or very heavy fines.

I know that they use their ticket revenue as working capital but they will never change their business mode if we do not enforce the currently active law.

Once they are obliged to comply, they will adapt and either come with a solution themselves or at least work based on the correct present set of laws and procedures.

It is pointless to come up with a new idea, procedure if it is not to be enforced...
 
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zeke
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Re: Large German Corporations Lobbying Against Advance Payments for Airline Tickets

Fri Jul 10, 2020 10:09 am

vhtje wrote:
In my view, airlines have had it good for two long. As a consumer, when you purchase an airline ticket, the contract is loaded against you.


We are not discussing retail purchase of tickets here, the law you are referring to does not apply. We are discussing large corporations that have supply agreements with the airlines.

Have a look at airline financial reports at the moment, you will see them paying for fuel that have not used because they had supply agreements to purchase quantities of fuel for fixed prices.

vfw614 wrote:
Regardless of that, the fact remains that Lufthansa alone has been withholding 1.8bn EUR from customers of all colors and shapes - consumer, small companies, large corporations.


They are not the same, please stop trying to say that corporations on supply agreements are treated the same as retail customers under the law. This thread is not discussing retail customers.
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max999
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Re: Large German Corporations Lobbying Against Advance Payments for Airline Tickets

Fri Jul 10, 2020 10:33 am

vhtje wrote:
zeke wrote:
vfw614 wrote:
The problem is that regardless of the price of the ticket / fare class airlines have not been refunding according to their statutory obligations as their business model is based on interest free credits provided by their customers..


I can see your point here, but on the flip side it is not the airline choosing not to fly the service it is the government prevents them from doing so. The aircraft, crew, infrastructure that is in place to complete your trip is still there. The airline wants to fly, but it is not allowed to..


So? I am a partner leading the very lucrative consulting arm in an accounting firm. We would love to be able to offer our consulting services to our audit clients, but Government regulations will not allow us. Previously, we could approach audit clients and offer consulting services if the audit relationship had ceased. Now, we are not allowed to approach them at all.

All businesses have to obey the law, even when it changes and even when it hurts my business or makes little sense to me. But we do it. Why should airlines be any different?

In my view, airlines have had it good for two long. As a consumer, when you purchase an airline ticket, the contract is loaded against you. The airline has all the control, and the passenger generally very little sway in being able to vary the contract; even when the contract is created many months in advance of the service delivery.

Yes, I fully understand the airline industry is a very complex one, with some extremely challenging cost structures not encountered in other sectors. But, still, to load contract against the customer in such a way. I cannot think of any other business where so much control wrests with the service provider/vendor, for so long before delivery.

The recent changes in the EU regarding delay compensation have been interesting (although personally, I think some of it goes too far, particularly around compensation amounts). It would be insightful to read some research into how these changes have impacted airline profitability and performance, if at all. And, indeed, how they have influenced consumer behaviour.


I absolutely agree that the relationship between airlines and consumers is very one sided.

I find it ironic that Lufthansa, a German company, is withholding 1.8 billion euros of debt against its customers. In German culture, debt is considered to be very bad and repaying debt is a sacred duty. If fact, the German word for debt (Schuld) is the same word as guilt (Schuld)!

As a result of this cultural hate of debt, German companies are very aggressive when they chase consumer debt. But now, the German government is allowing LH to illegally withhold this huge amount of money from consumer. Big corporations in Germany can abuse the system while consumers are punished for the smallest infraction.
All the things I really like to do are either immoral, illegal, or fattening.
 
RvA
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Re: Large German Corporations Lobbying Against Advance Payments for Airline Tickets

Fri Jul 10, 2020 10:39 am

max999 wrote:
vhtje wrote:
zeke wrote:

I can see your point here, but on the flip side it is not the airline choosing not to fly the service it is the government prevents them from doing so. The aircraft, crew, infrastructure that is in place to complete your trip is still there. The airline wants to fly, but it is not allowed to..


So? I am a partner leading the very lucrative consulting arm in an accounting firm. We would love to be able to offer our consulting services to our audit clients, but Government regulations will not allow us. Previously, we could approach audit clients and offer consulting services if the audit relationship had ceased. Now, we are not allowed to approach them at all.

All businesses have to obey the law, even when it changes and even when it hurts my business or makes little sense to me. But we do it. Why should airlines be any different?

In my view, airlines have had it good for two long. As a consumer, when you purchase an airline ticket, the contract is loaded against you. The airline has all the control, and the passenger generally very little sway in being able to vary the contract; even when the contract is created many months in advance of the service delivery.

Yes, I fully understand the airline industry is a very complex one, with some extremely challenging cost structures not encountered in other sectors. But, still, to load contract against the customer in such a way. I cannot think of any other business where so much control wrests with the service provider/vendor, for so long before delivery.

The recent changes in the EU regarding delay compensation have been interesting (although personally, I think some of it goes too far, particularly around compensation amounts). It would be insightful to read some research into how these changes have impacted airline profitability and performance, if at all. And, indeed, how they have influenced consumer behaviour.


I absolutely agree that the relationship between airlines and consumers is very one sided.

I find it ironic that Lufthansa, a German company, is withholding 1.8 billion euros of debt against its customers. In German culture, debt is considered to be very bad and repaying debt is a sacred duty. If fact, the German word for debt (Schuld) is the same word as guilt (Schuld)!

As a result of this cultural hate of debt, German companies are very aggressive when they chase consumer debt. But now, the German government is allowing LH to illegally withhold this huge amount of money from consumer. Big corporations in Germany can abuse the system while consumers are punished for the smallest infraction.


1.8 billion is a lot. Is there a source for that figure I’d be interested to learn more. Thanks
 
mxaxai
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Re: Large German Corporations Lobbying Against Advance Payments for Airline Tickets

Fri Jul 10, 2020 10:51 am

Jomar777 wrote:
The best outcome right now is to actually enforce what we have in place in matters of law. In other words, airlines will HAVE TO refund within 7 days - provided merit - otherwise, face aircraft impounding, partial/total bans on flying and/or very heavy fines.

The problem here is that the entity that would receive the fines is the same that is currently paying most airlines' salaries. The government would just be moving money from one pocket to the other. I agree that law enforcement should be more effective under normal circumstances.

The best way, law enforcement aside, is probably to make the money inaccessible to the airline until the day of travel. Put it into an escrow account or something. This would also solve the problem that customers lose all their money if an airline goes bankrupt.
 
max999
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Re: Large German Corporations Lobbying Against Advance Payments for Airline Tickets

Fri Jul 10, 2020 10:54 am

RvA wrote:
max999 wrote:
vhtje wrote:

So? I am a partner leading the very lucrative consulting arm in an accounting firm. We would love to be able to offer our consulting services to our audit clients, but Government regulations will not allow us. Previously, we could approach audit clients and offer consulting services if the audit relationship had ceased. Now, we are not allowed to approach them at all.

All businesses have to obey the law, even when it changes and even when it hurts my business or makes little sense to me. But we do it. Why should airlines be any different?

In my view, airlines have had it good for two long. As a consumer, when you purchase an airline ticket, the contract is loaded against you. The airline has all the control, and the passenger generally very little sway in being able to vary the contract; even when the contract is created many months in advance of the service delivery.

Yes, I fully understand the airline industry is a very complex one, with some extremely challenging cost structures not encountered in other sectors. But, still, to load contract against the customer in such a way. I cannot think of any other business where so much control wrests with the service provider/vendor, for so long before delivery.

The recent changes in the EU regarding delay compensation have been interesting (although personally, I think some of it goes too far, particularly around compensation amounts). It would be insightful to read some research into how these changes have impacted airline profitability and performance, if at all. And, indeed, how they have influenced consumer behaviour.


I absolutely agree that the relationship between airlines and consumers is very one sided.

I find it ironic that Lufthansa, a German company, is withholding 1.8 billion euros of debt against its customers. In German culture, debt is considered to be very bad and repaying debt is a sacred duty. If fact, the German word for debt (Schuld) is the same word as guilt (Schuld)!

As a result of this cultural hate of debt, German companies are very aggressive when they chase consumer debt. But now, the German government is allowing LH to illegally withhold this huge amount of money from consumer. Big corporations in Germany can abuse the system while consumers are punished for the smallest infraction.


1.8 billion is a lot. Is there a source for that figure I’d be interested to learn more. Thanks


The figure is from the article posted by the thread starter.

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Exeiowa
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Re: Large German Corporations Lobbying Against Advance Payments for Airline Tickets

Fri Jul 10, 2020 1:56 pm

The problem with the systems seems to be that it broke down, and one party is unable or unwilling to uphold it contractual obligation. Having been unable to do so the discussion is about if an alternative system is needed to prevent a party from saying sorry you are out of luck try again later. At this point it is clear that LH are outside the required remedy, and if someone is in this case a bad actor, then the rules should probably change to ensure that the party causing the problem cannot just sit on others money as they have been shown to be in bad faith. People are free to write contracts and agree to them as they wish, but if you are unable to seek redress in the way the contract specifies, next time you write one you would do it differently.
 
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par13del
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Re: Large German Corporations Lobbying Against Advance Payments for Airline Tickets

Fri Jul 10, 2020 2:29 pm

Why exactly is this an issue, did the German government just pony up billions of the tax payers money to Lufthansa? Rather than trying to secure shares, why did they not think to mandate the the funds also be used to comply with the laws? If the airline had gone into "administration" government taxes would be the first paid and companies and customers refunds for tickets would be all the way down the chain, the only leverage available was to get the money out of the government support and give the airline the rest.
One does have to wonder where these companies and their financial advisors were when the bail out was being discussed and delayed by one shareholder who most did not think highly of......
 
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lightsaber
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Re: Large German Corporations Lobbying Against Advance Payments for Airline Tickets

Fri Jul 10, 2020 2:48 pm

bnatraveler wrote:
Generally, the credit card companies are who are regulating when the airline gets payment. If the credit card company thinks there is risk that the seller (airline) may not deliver, they will hold higher reserves (as high as 100%) until the flight date. I think the big airlines have largely been able to get virtually all of their funds made available to them upon purchase. No need for a new system to manage this - the credit card company can already handle the "escrow" function.

Agreed.

I prepay hotels for discounts.
In effect I prepay airlines for discounts.
In effect, we are banning buy ahead discounting.

I say this as a customer with about $2k tied up in credits. I'm ok with that.

Lightsaber
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kalvado
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Re: Large German Corporations Lobbying Against Advance Payments for Airline Tickets

Fri Jul 10, 2020 3:58 pm

There are two basic ways to run a business - customer pre-pays for good manufacturing, and vendor pays for fabrication. There are variations with arranging financing and progress payments - but in general it's one or the other. There is also a general trend towards shifting financing burden on a vendor - sometimes abusively so: stores not paying suppliers until goods are paid at the register, Boeing switching to NET90. Airlines are one of few industries which are still able to make customers finance - to the point that revolving capital is basically the payment for undelivered services. Think about Ponzi working in the same way.
I see some logistical challenges, but given that airlines are in violation of the contract, and customers don't have free money - I expect airlines will have little negotiating power here.

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